A Short Post on Capitalism and Healthcare

I’d posted this as a comment on Mike the Mad Biologists blog a couple of days ago, and someone mentioned that it would be nice to have this in linkable form.

Someone over there said this about insurance companies:

Insurance companies do nothing wrong. They are FOR-PROFIT publicly traded companies whose obligations are to their shareholders. It’s actually illegal to some degree for them not to make as much profit as they can. They don’t make money by paying out. They make it by NOT paying out. It’s capitalism, folks

Whether health care is something that should be (out)sourced to the private sector is one question, and reasonable people can probably disagree. But expecting the private sector to act like the public? That’s just crazy.

I found that comment ridiculous on a number of levels. Most striking is the knee jerk “It’s capitalism.” So often people tell me that, without actually knowing what capitalism is. At any rate, below is my response in full, I hope that it clears up a couple of the deceptive or ignorant things people say about health care and “the market.”

Insurance companies do nothing wrong.

Idiotic statement.

They are FOR-PROFIT publicly traded companies whose obligations are to their shareholders. It’s actually illegal to some degree for them not to make as much profit as they can.

To be clear, wrong is a moral judgement, not a legal judgement. There could be a law FORCING insurance companies to shoot sick people in the head for profit, and it would still be morally wrong. There is no such law.

To argue that insurance companies are doing things that are legal, that’s a different kettle of fish.

Recission is legal. That’s why insurance companies do it. When questioned on the subject by congress, the insurance company representatives uniformly said that would NOT stop practicing rescission because rescission is legal. There is no question that recission is morally wrong. So insurance companies can do wrong, and do so regularly.

They don’t make money by paying out. They make it by NOT paying out. It’s capitalism, folks

I hate the “It’s capitalism.” argument. It’s not capitalism. That’s not the definition of capitalism. I encourage you to open an economics textbook. Capitalism is an economic system in which the means of production are privately owned, and labor/goods/capital are traded on a to-varying-degrees free market. Capitalism says NOTHING about insurance companies “paying out.”

Infact, in a large way insurance companies as-they-are-now are anti-capitalist, or at least anti-freemarket. “Free markets” only work when certain assumptions are met including:

-Markets need to be open: They generally aren’t in healthcare, you can only choose from options your employer has.

-Information is abundant: Not true in the insurance markets. Even the insurance reps don’t understand what they’re selling most of the time. I promise you most of my patients don’t know head or tails of what the options in front of them mean.

-People act rationally: Also not true in healthcare. People don’t understand their own “self interest” when it comes to healthcare. That’s the entire point of doctors – you’re paying for our expertise to give you an idea of what’s in your best interest. And there are no good markers to determine how to rationally choose a “good doctor,” which feeds the information problem above.

-No externalities: That is, the freemarket assumes every benefit or cost in the system is contained within the prices given. That’s 100% not true for healthcare. Your health is the definition of an externality. You can’t reasonably put a price on it, and if you could, you could not rationally divide up that price. That is, even if you said “X dollars is the cost of a life,” you couldn’t reasonably say “and Y percentage of X is the value of keeping my blood pressure under control.”

There are others, but those are the ones that come to mind. Clearly, it’s not just “that’s capitalism,” and saying so betrays a huge misunderstanding of the basic concepts we’re talking about.

 

Whether health care is something that should be (out)sourced to the private sector is one question, and reasonable people can probably disagree. But expecting the private sector to act like the public? That’s just crazy.

 

The question was never having the private sector act like the public sector. The question was “can the private sector blatantly deceive it’s customers about what it’s selling forever with impunity.”

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4 Comments on “A Short Post on Capitalism and Healthcare”

  1. catgirl Says:

    I think the biggest problem is that insurance companies do work for profit. This is just not one area that should be a for-profit industry.

  2. Papa Tales Says:

    Why do we need medical insurance companies for insurance? What do they do? They decide what the medical institutions and doctors should be paid for service – what other service do they provide? Why should we pay 30% overhead for no real service. So what will competetion provide – 29% overhead instead of 30%. If there was a government run program the overhead would be 4-5%. It is too bad that the Republican politicians (and Fox News) have conviced people that insurance companies are good for them.

    Yesterday I went for a hair cut at Bo Rics (the cheapest hair styling chain). The girl who cut my hair said that she was against health care reform because that would increase her taxes. She probably makes 20K and she thinks her taxes will go up because of health care reform that will benefit her. I guess this is what happens when your IQ is very low, watch too much of Fox News and listen to Right wing radio.


  3. Hey I’m a capitalist, but whoever wrote that garbage is not an economist or has the slightest knowledge of business.

    Typically, consumers make rational choices based on a whole host of factor, including price, service, quality, and who knows what else. If we had choice, we would switch between insurance companies. But we, as the consumer, have no choice, so consumers cannot make rational choices. As our young physician in training says, the industry is almost anti-capitalist. In fact, the current insurance industry is almost socialist in that it uses regulations and rules to control market behavior.

    A government option will make it competitive. Good for the consumer!


  4. One other thing that drives me crazy about the insurance industry. Well, there are several hundred reasons, but let’s just add one more. As you basically said, this industry is supporting the myth that healthcare reform is “socialist.” Yet the health insurance industry uses the government to protect its profits. So I guess corporate welfare is acceptable. That’s kind of hypocritical, but we’ve come to accept that!


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